Written Commentary
GOLD
December gold futures are lower, continuing to retreat from recent record highs, despite increasing prospects of a more aggressive Federal Reserve pivot to accommodation. Traders are awaiting this week’s economic reports, especially Friday’s employment numbers to adjust their expectations for the size of likely Federal Reserve interest rate reductions. The latest calculations show there is a 65% probability that the Federal Open Market Committee will lower its funds rate by 25 basis points at its September 18 meeting, and there is a 35% probability that the FOMC will reduce its key interest rate by 50 basis points in September.
The probability of a larger rate cut from the Fed has increased this morning from what was predicted in the overnight trade. Markets anticipate 100 basis points in interest rate cuts from the Federal Open Market Committee in its remaining three policy meetings this year, which would lower the opportunity cost of holding non-interest-bearing assets, such as gold.
SILVER
December silver futures are lower despite the likely Federal Reserve interest rate reduction this month. Much of today’s weakness appears to be linked to increasing prospects of a weakening global economy and, therefore, lesser demand for industrial commodities.
However, the pressure may be limited due to prospects of lower interest rates from the Federal Reserve this year and to a lesser degree silver’s flight to quality status in light of rising geopolitical tensions.
COPPER
December copper futures are sharply lower and are now at the lowest level since August 15 in light of increasing inventories and soft the demand from a large copper consuming country in Asia. Copper inventories in LME warehouses increased recently by 8,700 tons.
In addition, there has been pressure on copper due to recent gains in the U.S. dollar. The bearish influence of prospects of weakening global demand for industrial commodities will probably outweigh the bullish influence of a Federal Reserve pivot to accommodation.
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